(a)

MEMO

To: Chairman
From: Chief Operations Officer
Date:
Subject: Reasons for maintaining a centralized administration office

The following are reasons why Sunrise Enterprises should maintain its current centralized administration office structure:

(i) Consistency – Maintaining the current centralized administration office would continue to ensure consistency throughout the organization with regards to administrative tasks. This consistency is needful in ensuring a common organizational identity and culture. For example, the current centralized administration structure ensures that the same account codes are used no matter which part of the organization submits an invoice. This way, everyone uses the same data and information.

(ii) Security and control – The current centralized administration structure gives better security and control over operations, and it is easier to enforce standards throughout the organization.

(iii) Economies of scale – The current centralized administrative structure offers the advantage of economies of scale and thus contributes to the reduction of overhead costs. For example, in purchasing computer equipment for the entire organization, lower prices can be bargained for in addition to other benefits since a greater purchase volume positions our company to bargain for lower prices.

Signed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            (b)

A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization’s actions, objectives and policies.

Groupings of stakeholders
When identifying stakeholders, it is not enough to focus on the formal structure of the organization. It is necessary to have a look at informal and indirect relationships too. There are a number of ways of classifying stakeholders according to criteria based on how stakeholders relate to organizational activities. A useful model for this purpose is to visualize the stakeholder environment as a set of inner and outer circles. The different classifications of organizational stakeholders are:

(1) Internal and external stakeholders
Here, stakeholders are distinguished depending on whether they are part of the organization – i.e. have a formal working relationship with the organization – or are external to the organization. Internal stakeholders include employees, management and board of directors, and possibly trade unions. External stakeholders include customers, competitors and suppliers. It could also include all other groups which do not form part of the internal organization’s structure.

(2) Narrow and wide stakeholders
This classification describes the degree to which the stakeholder group is affected by the activities of the organization.
Narrow stakeholders are used to describe stakeholders who are most affected or who are most dependent on organizational output. Examples of such stakeholders include shareholders, employees, management, customers and suppliers.
Wide stakeholders, on the other hand, refer to those who are less affected or dependent on the organization’s output. This category includes government and its agencies, the wider community and nondependent customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    (c)

(i) Economies of scale: High fixed costs often imply a high breakeven point, and a high breakeven point depends on a large volume of sales. If the market as a whole is not growing, new entrants into the industry would have to capture a large slice of the market from existing competitors. This is expensive. Thus, if significant scale economies are already enjoyed by existing firms, potential new entrants experience strong barrier to entry into the industry.

(ii) Product differentiation: The degree to which existing firms have succeeded in differentiating their respective products or services from the competition determines how strong the barrier to entry for potential new entrants. Existing firms may have built up a good brand image and strong customer loyalty over a long period of time. A few firms may promote a large number of brands to crowd out the competition.

(iii) Capital requirements: The amount of capital required to enter an industry determines the extent of difficulty new entrants face in their quest to enter the industry. When investment requirements are high, the barrier against new entrants will be strong, particularly when the investment would possibly be high-risk.

(iv) Knowledge requirements: As well as high capital requirements, knowledge and know-how are also a barrier to entry. It is much more difficult to enter an industry which requires significant specialist knowledge, and skills, than an industry where no specialist skills are required.

(v) Switching costs: Switching costs refer to the costs that a customer would have to incur by switching from one supplier’s products to another’s. Switching costs is a composite of three costs namely: time, money and convenience. Switching costs are usually higher for industries with greater extent of product differentiation. If switching costs are high, new entrants into the industry experience a strong barrier to entry since they have to invest heavily in differentiating a product and also creating awareness for its products so as to build its own loyal customers. The barrier is even stronger where the market is saturated.